tempus fugit

Destruction of American Middle Class: Krugman’s Point of View

The progressive New York Times editorial columnist Paul Krugman published his interpretation of the rise in mortality reported among American white middle-aged lower educated men and women. This rise was particularly marked in suicides and drug-related deaths, even in cirrhosis of the liver. What is even more shocking is the fact that the foreign mortality statistics among the same population group have improved or at least stayed stable, among almost all European countries except Russia.

Krugman’s explanation is that the problem is related to a phenomenon he says has been described already, as “hysteresis”: the long term negative effects of short term austerity policies among national governments. He says that economists in 1986 described the problem as the effect of misguided short-term austerity policies on long-term growth abilities– that is, a negative effect. Debts are actually greater long term when austerity policies are used than when expansionary policies are in effect, because the expansionary policy results in so much more long-term growth that it overwhelms any short-term debts.

Of course, advocating expansionary, or Keynesian economic policies is unlikely to get anywhere with the coming six to eight years of Republican domination of Congress. Those who should learn from experience, long, repeated experience, that austerity policies cause long-term damage, simply ignore the facts and continue to repeat that they are the Very Serious People who should determine policy.

There may be some hidden advantage that those who advocate contraction-causing economic policies derive from the general pain that austerity causes. Perhaps they are able to maintain their control over the levers of power in the government when it contracts, and expansionary events cause a risk that they will lose their control. Perhaps they hold large amounts of gold or precious metals and wish to see the price increase, as it has over the last fifteen years.

The price of gold plateaued in the last years of the Clinton administration, then started increasing in the early years of Bush and even more in the first few years of Obama. There was a crash in 2013, but prices improved the following year and are again at historical highs. It is important to note that gold prices were increasing even in the early years of the Bush administration, before the Great Recession began. There was something about government policy that benefited holders of gold, even without contraction of the economy; perhaps it was the losses that middle class workers were experiencing even as the economy appeared to expand and military spending was increased in the early years of the Bush administration.